Carillion JM Ltd v Phi Group Ltd

Mr Justice Akenhead:

“4.3 Our client does not wish to extend costs on further legal and expert views and acknowledges that its likely liability (alongside your client’s) coupled with the irrecoverable costs of defending a claim such as this, make an early settlement preferable. On this basis our client offers to split liability with your client on a 70:30 basis (in your client’s favour).

4.4 We consider on discussing this matter with our expert and counsel that your client’s apportionment of liability may well exceed 30%. Notwithstanding, in order to be sure of the offer providing costs protection, coupled with a desire to conclude a speedy resolution of the dispute, our client’s offer is that your client accept 30% liability.

4.5 This offer is made under Part 36 of the Civil Procedure Rules and the offer is intended to have the consequences of Part 36 of the Civil Procedure Rules.

4.6 Notwithstanding, in light of the pressing timescales in this claim, our client would be grateful if your client’s response to this offer could be provided within the next 7 days…

4.10 If there is any aspect of this offer which is unclear would you please let us know within 7 days and we will endeavour to provide an appropriate clarification…

6.2 We look forward to receiving your client’s response to our client’s Part 36 offer, within 7 days if possible…”

This offer was never even acknowledged, let alone answered in one way or the other.

“…our client is willing to agree in advance of the mediation that should the mediation result in a full and final settlement of the claim between your client and Carillion (specifically, that it extinguishes your client’s liability to Carillion for negligence and/or breach of contract arising out of any aspect of your client’s works whatsoever in connection with the Wembley LMD project, including those works (whether undertaken in 2004, 2005 or 2006) which are the subject of Carillion’s legal action), our client would be prepared to agree to a discontinuance of its proceedings against your client, in return for your client discontinuing its proceedings against our client, with no order as to costs.

The above is not a ‘starting point’ for negotiations by our client. Our client could have written demanding a contribution towards the sums it has paid to Carillion and/or towards the costs it has incurred progressing its claim against your client. Rather the offer above is intended to be a realistic commercial proposal to permit the resolution of the entire dispute with out further wasted costs on all sides.

This offer is open until 5 pm on the 16^th of November at which time it shall be deemed withdrawn as our client will then be beginning its preparations for trial. Clearly, however, if the offer contained within it is not accepted by your client within the prescribed time, we will be referring to this letter, and the offer contained within it, when questions of costs of the ongoing litigation come to be considered by the Trial Judge…”

“Our client now writes to propose settlement on very similar terms to those previously proposed, namely: (i) with a discontinuance of a contribution proceedings ongoing between our respective clients; and (ii) with each party bearing its own costs to date, but without a condition that your client’s claim against Carillion is settled…

With the above in mind our client offers to agree to a discontinuance of its proceedings against your client, in return to your client discontinuing its proceedings against our client, with no order as to costs.

This offer will be open for 21 days, however if your client intends to accept this offer your client is encouraged to confirm the same as soon as possible-as costs on all sides (specifically with regard to experts’ costs) will be saved if the contribution actions are swiftly concluded.

Whilst this offer cannot be made on a Part 36 bases as it prescribes costs consequences, should the offer contained within this letter not be accepted by your client within the prescribed time, we will be referring to this letter, and the offer contained within it, when questions of costs of the on-going litigation come to be considered by the Trial Judge…”

(i) Whether any proportion of Carillion’s costs should be borne by Phi; RWC argues that 60% of Carillion’s costs should be borne by Phi to reflect the apportionment which has been made as between the two of them. Phi argues that none of Carillion’s costs should be borne by it.

(ii) Whether and in what proportion Phi should pay the costs of RWC’s contribution proceedings against it. RWC argues that, as it has succeeded in effect in securing a net additional sum of more than £500,000 from Phi over and above what Phi has paid to Carillion by way of the settlement, it should have all its costs. Phi argues that it should pay no part of RWC’s costs.

(iii) Whether and in what proportion RWC should pay the costs of Phi’s contribution proceedings against it. Phi asserts that RWC should pay all of those costs whilst RWC argues the reverse.

“36.A1-1) This Part contains rules about

(a) offers to settle; and

(b) the consequences where an offer to settle is made in accordance with this Part…

36.1 –(2) Nothing in this Section prevents the party making an offer to settle in what ever way he chooses, but if the offer is not made in accordance with rule 36.2, it will not have the consequences specified in rules 36.10, 36.11 and 36.14.

36.2-(1) An offer to settle which is made in accordance with this rule is called a Part 36 offer.

(2) A Part 36 offer must –

(a) be in writing;

(b) state on its face that it is intended to have the consequences of Section I of Part 36;

(c) specify a period of not less than 21 days within which the defendant will be liable for the claimant's costs in accordance with rule 36.10 if the offer is accepted;

(d) state whether it relates to the whole of the claim or to part of it or to an issue that arises in it and if so to which part or issue; and

(e) state whether it takes into account any counterclaim.

36.3-(1) In this part-

(a) the party who makes an offer is the “offeror”;

(b) the party to whom an offer is made is the "offeree”; and

(c) "the relevant period" means-

(i) in the case of an offer made not less than 21 days before trial, the period stated under rule 36.2(2)(c) or such longer period as the parties agree;

(ii) otherwise, the period up to the end of the trial or such other period as the court has determined.

(2) A Part 36 offer-

(a) May be made at any time, including before the commencement of the proceedings…

(6) After expiry of the relevant period and provided that the offeree has not previously served notice of acceptance, the offeror may withdraw the offer or change its terms to be less advantageous to the offeree without the permission of the court.

(7) The offeror does so by serving written notice of the withdrawal or change of terms on the offeree.

36.7-(1) A Part 36 offer is made when it is served on the offeree.

(2) A change in the terms of a Part 36 offer will be effective when notice of the change is served on the offeree.

36.9-(1) A Part 36 offer is accepted by serving written notice of the acceptance on the offeror.

(2) . . . a Part 36 offer may be accepted at any time (whether or not the offeree has subsequently made a different offer) unless the offeror serves notice of withdrawal on the offeree.”

36.11-(1) If any Part 36 offer is accepted, the claim will be stayed.

(2) In the case of acceptance of a Part 36 offer which relates to the whole claim the steady will be upon the terms of the offer…

36.14(1) This rule applies where upon judgment being entered –

(a) a claimant fails to obtain a judgment more advantageous than a defendant's Part 36 offer; or

(b) judgment against the defendant is at least as advantageous to the claimant as the proposals contained in a claimant's Part 36 offer.

(2) . . . where rule 36.14(1)(a) applies, the court will, unless it considers it unjust to do so, order that the defendant is entitled to —

(a) his costs from the date on which the relevant period expired; and

(b) interest on those costs.

(3) . . . where rule 36.14(1)(b) applies, the court will, unless it considers it unjust to do so, order that the claimant is entitled to –

(a) interest on the whole or part of any sum of money (excluding interest) awarded at a rate not exceeding 10% above base rate for some or all of the period starting with the date on which the relevant period expired;

(b) his costs on the indemnity basis from the date on which the relevant period expired; and

(c) interest on those costs at a rate not exceeding 10% above base rate."

“4. It can be seen from Part 36 as a whole, as well as from the extracts cited above, that it contains a carefully structured and highly prescriptive set of rules dealing with formal offers to settle proceedings which have specific consequences in relation to costs in those cases where the offer is not accepted and the offeree fails to do better after a trial. In cases where there has been no Part 36 offer or a Part 36 offer has been bettered the judge has a broad discretion in dealing with costs within the framework provided by Part 44. Rule 44.3(4) provides that when exercising its discretion as to costs the court will have regard to the general rule that the unsuccessful party should pay the costs of the successful party, but will also have regard to the conduct of the parties and any payment into court or admissible offer to settle made by one or other party which falls outside the terms of Part 36. In seeking to settle the proceedings, therefore, parties are not bound to make use of the mechanism provided by Part 36, but if they wish to take advantage of the particular consequences for costs and other matters that flow from making a Part 36 offer, in relation to which the court's discretion is much more confined, they must follow its requirements.

5. Part 36 is drafted as a self-contained code. It prescribes in some detail the manner in which an offer may be made and the consequences that flow from accepting or failing to accept it. In some respects those consequences reflect broadly the approach the court might be expected to take in relation to costs; in others they do not; for example, rule 36.14(3) allows the court to award a claimant who has obtained a judgment at least as advantageous as his offer interest on the sum for which he has obtained judgment at an enhanced rate of up to 10% over base rate, costs on the indemnity basis and interest on those costs at an enhanced rate as well.

6. Basic concepts of offer and acceptance clearly underpin Part 36, but that is inevitable given that it contains a voluntary procedure under which either party may take the initiative to bring about a consensual resolution of the dispute. Such concepts are part of the landscape in which everyone conducts their daily life. It does not follow, however, that Part 36 should be understood as incorporating all the rules of law governing the formation of contracts, some of which are quite technical in nature. Indeed, it is not desirable that it should do so. Certainty is as much to be commended in procedural as in substantive law, especially, perhaps, in a procedural code which must be understood and followed by ordinary citizens who wish to conduct their own litigation. In my view, Part 36 was drafted with these considerations in mind and is to be read and understood according to its terms without importing other rules derived from the general law, save where that was clearly intended.”

“16. In my view, attractive though these arguments are, they cannot be reconciled with the clear language of Part 36, or indeed with the scheme which it embodies. Rule 36.9(2) is quite clear: a Part 36 offer may be accepted at any time unless the offeror has withdrawn the offer by serving notice of withdrawal on the offeree. Moreover, it may be accepted whether or not the offeree has subsequently made a different offer, a provision which is contrary to the general position at common law. The rules state clearly how a Part 36 offer may be made, how it may be varied and how it may be withdrawn. They do not provide for it to lapse or become incapable of acceptance on being rejected by the offeree. That would be the case at common law, but it is inconsistent with the concepts underlying Part 36, which proceeds on the footing that the offer is on the table and available for acceptance until the offeror himself chooses to withdraw it. There are good reasons for that. An offer which appears unattractive when made, and which is therefore rejected, may become more attractive as the proceedings progress and the parties reassess the strength of their respective cases. A defendant who chooses to leave his offer on the table may tempt the claimant into accepting it, with the benefit to himself of the consequences for costs of an offer made at an early stage. Part 36 allows a defendant (or for that matter a claimant) to decide whether to leave his offer open for acceptance or to withdraw it and make another offer later. To import into Part 36 the common law rule that an offer lapses on rejection by the offeree would undermine this important element of the scheme. It could give rise to disputes about whether the offer had been rejected in any given case so as render it incapable of acceptance. In Sampla v Rushmoor Borough Council [2008] EWHC 2616 (TCC) Coulson J. held, largely for these reasons, that the rejection of a Part 36 offer does not render it incapable of later acceptance. In my view he was right to do so.

17. Nor do I think that the letter of 18^th February 2009 can be read as containing an implied withdrawal of the Part 36 offer. Rule 36.3(7) provides that an offer is withdrawn by serving written notice on the offeree. In my view that leaves no room for the concept of implied withdrawal; it requires express notice in writing in terms which bring home to the offeree that the offer has been withdrawn. If justification for that requirement is sought, it can be found once again in the need for clarity and certainty in the operation of the Part 36 procedure. Although the rule does not prescribe any particular form of notice, in order to avoid uncertainty it should include an express reference to the date of the offer and its terms, together with some words making it clear that it is withdrawn. There may, of course, be cases in which the terms of the notice are less clear than might be wished so that there is room for argument about whether the notice fulfils the requirements of the rule. However, that is a different question. The letter of 18^th February 2009 did not refer to the Part 36 offer and did not contain any language that might be construed as a notice of withdrawal. In my view it was quite incapable of constituting a notice of withdrawal of the kind required by rule 36.3(7).”

The Carillion Costs

(a) There was an offer open for acceptance from Phi to RWC which was open for acceptance any time from early February to early November 2010. In reality, if RWC had accepted that, although it would only have settled the contribution proceedings in the 2009 Claim settled as between Phi and Carillion, the commercial reality is that it could well have set the scene for the effective resolution of RWC’s contribution proceedings in the Carillion claim against RWC. It was, certainly as it turned out, a generous offer which, doubtless, RWC would have wished, in hindsight that it had accepted.

.

(b) There are a significant number of respects in which the conduct of the proceedings by RWC unnecessarily added to the time and resource which all parties including Phi and RWC expended in the 2010 proceedings.

(i) RWC in November 2010 must have known that its engineering expert, Mr Jessep, felt professionally obliged to accept that RWC had fallen below the requisite standards of competent engineers; in effect, RWC must have known that its defence on liability was irreparably damaged. Notwithstanding this, RWC continued to deny and challenge liability until it conceded liability openly and formally as late as the sixth day of the twelve day trial. The “writing was on the wall” no later than the end of November 2010, given that Mr Jessep’s report was exchanged on 1 December 2010.

(ii) There was a fundamental misconception within the RWC ranks as to its ability in practice to challenge the overall efficacy of the Chiltern costs. In broad terms, Chiltern was not a party to the litigation but Carillion had to secure Chiltern’s agreement as the operator of the depot and thus was bound in reality to accept whatever constraints which Chiltern imposed. I said at Paragraph 171 of the main judgement:

“This is important because my broad acceptance of what the Chiltern witnesses have said in evidence leads inevitably to the conclusion not only that the constraints which Chiltern seek to impose are logical, reasonable and supportable but also that it consequently cannot be considered to be unreasonable on the part of Carillion to seek to do the remedial works in a way which recognises the need to comply with those constraints. Indeed, it is wholly reasonable for Carillion to do so. Carillion has been put into a very difficult position, both commercially and legally, by the extensive breaches of contract of Phi and RWC because twice in the past Carillion, albeit attributable to the fault of Phi and RWC, has failed to put right underlying defects in the soil nailed walls. It would be commercially unacceptable for and unreasonable to expect Carillion not to wish to put right, finally, the problems with these walls. To do that, Carillion must cooperate with Chiltern, who operate and operate in the depot, and it is, within reason, bound in practice and reality to accept whatever constraints Chiltern wish to impose. Of course, there is a point beyond which it might be said that Chiltern's constraints or requirements are so ridiculous and so grossly unreasonable that no person in Carillion's position could properly or reasonably accept them; for instance, if Chiltern insisted on the use of platinum soil nails at the cost of £100m, it would not be reasonable for Carillion, vis-à-vis RWC, to accept that constraint. However, it can not begin to be said that Chiltern's constraints fall within that type or category.”

(iii) Both Mr Justice Edwards-Stuart and I at earlier procedural meetings with the parties found it difficult to see how a railway expert, such as Mr Glasscock, could materially assist in challenging the constraints imposed by Chiltern (being working hours, the pinch point at the Country end and only Sunday working at that point, and the continued south-north operation of the depot during the remedial works); it was never seriously argued at trial that these constraints fell into the ridiculous or grossly unreasonable category. With some diffidence, the Court allowed eventually the deployment of railway experts. A significant part of the trial was spent in RWC seeking to undermine the Chiltern constraints as merely unreasonable. It was suggested by RWC that what it was trying to do was seek to show that in fact Chiltern was never really going to impose the constraints and was never going to service and refuel the displaced trains at Tyseley. That was going to require RWC in effect being able to demonstrate that senior Carillion and Chiltern witnesses were effectively conspiring together to mislead the Court and then the two parties would share in the ill-gotten damages proceeds; this was just fanciful. A good example was the daytime working hours requirement imposed to avoid noise nuisance to Chiltern neighbours at night; as found in the judgement, this could not begin to be described as unreasonable even if it was necessary to demonstrate that.

(iv) The challenge to the Chiltern constraints led to a wholly unnecessary expansion of the programming expert evidence. Dr Aldridge for RWC identified 17 alternative programming options with various variants on working hours and north-south use of the depot; these were all irrelevant if, as was the case, the constraints could not effectively be challenged. Suggestions that the local residents should be exposed to 24 hour working and intrusively loud sheet piling noise for instance and that they should be given double glazing were lacking in reality.

(v) RWC’s arguments on causation were not wholly unreasonable but they largely depended on, first, RWC’s alleged lack of knowledge of the January 2005 slips and, secondly, on RWC’s limited involvement after and in connection with the October 2005 slips. The first point was almost fatally undermined by Mr Bird’s email of 17 February 2005 referring to these slips (see Paragraph 61 of the main judgement). The second point was not a strong one, albeit arguable, for the reasons adumbrated in the main judgement (Paragraphs 138-148).

(vi) RWC’s arguments on Carillion’s alleged contributory negligence were again arguable but relatively weak; they amounted to little more than saying that, although it had engaged Phi and RWC in relation to the design and vetting of the site investigation information, Carillion should have picked up the risk of shallow and deep-seated instability because it had a number of chartered civil engineers working on the project. Again, this was relatively easily rejected in the judgement (see Paragraphs 149-151); Paragraph 150 said:

“Whilst it is true that there were a number of chartered civil engineers who worked on this depot project, it is clear that none of them in fact picked up on the deep-seated instability problem or the deficiencies in the calculations or design. There is no and no credible evidence however that anyone within Carillion was charged with checking up on RWC or the substance of Phi's design or calculations. Dr Love raised the saying which has some if not an absolute resonance: why have a dog and bark yourself? Carillion employed Phi as specialist soil nailing contractors to carry out the detailed design and the installation of the soil nailing work; it employed RWC as its overall consulting engineer designer, its Lead Consultant and as its reviewer or checker of Phi's designs and calculations. There is no suggestion that RWC and Carillion operated on some convention or understanding that Carillion's personnel, even if they were chartered civil engineers, would vet the design, calculations or review process carried out by Phi and RWC respectively. The fact that a client of a professional consultant or contractor has some expertise which overlaps with that of its consultant or contractor does not mean, without more, that the client can or will be contributorily negligent if the client fails to notice at the time that its consultant or contractor has been negligent. This applies not only during the preconstruction stages in this case but also in the aftermath of the January and October 2005 slips.”

(c) The effect of all this is that RWC chose, albeit as it was entitled to do, to run a number of defences, mostly of fact, which had little or no chance of success and it would be wrong to expect Phi to have to pick up a disproportionately large share of Carillion’s costs of dealing with a significant number of weak or unsustainable points being pressed by RWC without any active support for them from Phi.

(d) That is not to say that there was not a coincidence of interest between Phi and RWC on quantum matters relating to the remedial works and their legal teams worked in part together to challenge aspects of quantum. It would also be wrong to categorise everything done by RWC as unjustified or weak; after all, quantum was reduced by about £1.8m. It was also the case that Mr Glasscock’s efforts did at least result in an effective pre-trial challenge to some illogical aspects of Chiltern’s costs, in respect of which some concessions running to some hundreds of thousands of pounds were made.

(e) It is the case that for reasons best known to them but possibly reflecting the matters set out at (b) to (e) above, Carillion and RWC agreed that RWC should pay Carillion’s standard costs to 28 December 2009 and indemnity costs thereafter. Since providing a copy of the draft judgement on costs to the parties, it has emerged that Carillion made a Part 36 offer dated 8 December 2010 to RWC to settle the case at a net sum of £3.2 million; this was open for acceptance for 21 days but was withdrawn apparently on the 15th February 2011. It may be that RWC had this in mind when agreeing to pay indemnity costs from 28 December 2010. Whatever the reasons were, none of them can or do obviously relate to anything which Phi did or failed to do in the litigation. I do not see why Phi should have to pay the indemnity cost element of this.

The Costs of the Respective Contribution Proceedings